Bad Start to 2012 for AlcaLu

Alcatel-Lucent (NYSE: ALU) got 2012 off to a poor start with first-quarter results that provided little joy or comfort for the Franco-American joint venture, with revenues from its networks division dipping below €2 billion (US$2.64 billion) mark for the first time in two years and the company's share price tumbling by more than 14 percent on the Paris exchange. (See AlcaLu Reports Q1 Profit of €398M.)

The vendor reported a 12.3 percent year-on-year decrease in revenues to €3.2 billion ($4.23 billion) as sales slumped in Europe and North America. Gross margins crashed by 5 percentage points to 30.3 percent and its operating loss worsened considerably to €289 million ($382 million), compared with €64 million ($84.6 million) a year ago.

The company, which described the first quarter as "a slow start," blamed the margin decline on "the decline in CDMA revenues" as North American operators migrate to LTE and "unfavourable mix in Services and overall lower volumes."

Table 1: Alcatel-Lucent Q1 2012
In millions of euros Q1 2011 Q1 2012 Y/Y change Q4 2011 Q/Q change
Revenues 3,656 3,206 -12.3% 4,150 -22.7%
Gross margin 35.3% 30.3% Decrease of 5 percentage points 34.4% Decrease of 4.1 percentage points
Operating income -64 -289 -351.6% 210 Not measurable
Net income -10 398 Not measurable 868 -54.1%
Source: Alcatel-Lucent

Like Ericsson AB (Nasdaq: ERIC), AlcaLu is finding the going tough in Europe, where, the company noted in its earnings statement, "market uncertainties remain high."

And while sales were down in North America, AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) were still major customers, accounting for 11 percent and 12 percent of total revenues respectively.

Table 2: Alcatel-Lucent Q1 2012 Revenues by Region
In millions of euros Q1 2011 Q1 2012 Y/Y change Q4 2011 Q/Q change
North America 1,523 1,342 -11.9% 1,409 -4.8%
Asia Pacific 525 496 -5.5% 775 -36.0%
Europe 1,099 857 -22.0% 1,276 -32.8%
Rest of World 509 511 -0.4% 690 -25.9%
Total 3,656 3,206 -12.3% 4,150 -22.7%
Source: Alcatel-Lucent

The company's net income for the first quarter was a healthy-looking €398 million ($526 million), but that was boosted by €659 million ($871 million) from "discontinued operations," mostly accounted for by proceeds from the sale of enterprise systems business Genesys. (See AlcaLu Closes Genesys Sale.)

Investors, who had been offered a glimmer of hope by Ericsson's first-quarter increase in margins, reacted accordingly, sending AlcaLu's share price crashing by 14.1 percent to €1.26. That price gives AlcaLu a market capitalization of just less than €3 billion ($4 billion).

But there is still no news of any major restructuring program at AlcaLu. It believes it will benefit from some "significant next generation network roll-outs around the globe, in particular in North America and China," and expects to "have better visibility on our profitability at the end of the current quarter."

IP division only shining light
As the table below shows, only the IP business managed to generate greater revenues than a year ago within the Networks division, with wireless and optics suffering particularly badly. Services revenues were almost the same as a year ago but down significantly from the previous quarter.

Table 3: Alcatel-Lucent Q1 2012 Revenues by Division and Product Line
In millions of euros Q1 2011 Q1 2012 Y/Y change Q4 2011 Q/Q change
Networks 2,418 1,981 -18.1% 2,476 -20.0%
- of which IP 349 431 23.5% 454 -5.1%
- of which Optics 654 489 -25.2% 724 -32.5%
- of which Wireless 1,118 788 -29.5% 893 -11.8%
- of which Wireline 309 282 -8.7% 419 -32.7%
- of which eliminations -12 -9 25% -14 35.7%
Software, Services & Solutions 975 969 -0.6% 1,315 -26.3%
- of which Services 869 870 0.1% 1,158 -24.9%
- of which Network Applications 106 99 -6.6% 157 -36.9%
Enterprise 195 178 -8.7% 215 -17.2%
Other & eliminations 68 78 14.7% 144 -45.8%
Total group revenues 3,656 3,206 -12.3% 4,150 -22.7%
Source: Alcatel-Lucent

In the IP division, the vendor noted that more than 25 customers have now deployed 100Gbit/s Ethernet on their AlcaLu routers and that the company's FP3 chips started shipping as part of 100Gbit/s line cards during the first quarter. (See AlcaLu Issues 400G Router Challenge.)

The optics division saw declines in both terrestrial and submarine system sales, but on the plus side saw further demand for 100Gbit/s capabilities, which have now been deployed by more than 60 customers.

Wireless revenues were hit hard by lower CDMA sales in North America and "extremely weak" GSM business in China compared with a year ago. AlcaLu did, though, record "double-digit growth in W-CDMA [3G] and LTE revenues, which more than doubled compared to the year-ago quarter, and grew more than 50 percent sequentially."

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 5:35:00 PM
re: Bad Start to 2012 for AlcaLu

Can ALU continue with so many parts to its whole?

Or does it need a major dose of restructuring to survive?


Right now there must be questions amongst customers, partners, staff and            investors about whether the company has a viable future in its current guise.

Indaba 12/5/2012 | 5:34:59 PM
re: Bad Start to 2012 for AlcaLu

Dump Lucent, they have brought NO value to the NA Market, Serge Turuck was an idiot the should have aquired Nortel instead.

ecipo 12/5/2012 | 5:34:57 PM
re: Bad Start to 2012 for AlcaLu

Actually concerning the sales, the decline there has been more or less in line with Ericsson's network division.

^Eagle^ 12/5/2012 | 5:34:56 PM
re: Bad Start to 2012 for AlcaLu


Actually you are incorrect in your assertion.  in optics, the one bright spot is the 100G platforms (switching and transport) and that work is largely the Nuremberg division of the lold Lucent.  and the 100G line card in the high end ALU router that is mentioned in the article, also has it's roots in Nuremberg (optics and high end asic / DSP... the routing knowledge came from elsewhere).

The parts of ALU that saw a decline in optics were older legacy transport systems (which were largely alcatel products) and the access optical business (PON) with was also Alcatel's.  VZ has pretty much stopped build out of FIOS and in Asia incumbent players are winning the PON business (China, Korea, Taiwan, Japan).  Europe is not yet turning on PON in any significant way, as was also pointed out in the article.

So one could argue that the LU purchase, at least in terms of high end optical transport, has really been a great positive for ALU. 

Now, there were other parts of Lucent that were more decrepit.



Garci 12/5/2012 | 5:34:56 PM
re: Bad Start to 2012 for AlcaLu

The 100G linecards in the router have no DSP or optical components. They use CFP pluggables and the whole technology came from the Timetra team that built the 7750. 


Indaba 12/5/2012 | 5:34:55 PM
re: Bad Start to 2012 for AlcaLu

Exactly, and Nortel would have given ALU 100% deeper NA market penetration. That was the the worst M&A I can remember. The only glimmer I can see is possibly the light radio out of Bell Labs but we shall see.